I began analyzing the financial markets in 1982 when I became the research director for a financial advisory firm and provided regular market analysis on stocks, commodities, currencies and mutual funds. I am a technical analyst. Much of my focus was on how obscure technical indicators or methods, could be applied to the financial markets and used as an effective trading tool. Many of the indicators I have used for years, such as Gerry Appell's MACD and Welles Wilder's RSI, have subsequently gained wide popularity.

This page is devoted to sharing my insights and techniques in order to help you become a smarter trader/investor. Over the past twenty years I have traveled around the world several times, visiting all of the major financial centers as he taught professional traders and money managers my approach to the financial markets.

My method of stock selection starts with a proprietary scanning method to select a group of individual stocks for more extensive analysis. This includes an in-depth study of the volume patterns that I use to determine the strength of a stock's trend. Those with the strongest trend, either up or down, are then further analyzed to determine entry, exit and risk levels. I use Fibonacci retracement, projection and extension analysis to determine both profit objectives as well as stops.

Momentum Meltdown, Bear Trap or...

It was a rough start for the stock market on Tuesday, especially for the widely watched, so-called “momentum stocks.” Another market warning, this time from an institutional analyst, helped to sour investor sentiment.

The negative comments from a hedge fund manager in April came just a few days before the market bottomed. The S&P 500 and Dow Industrials were down less than 0.75% Tuesday while the Nasdaq Composite lost 1.35%. The market internals at 3-2 negative were not that bad with the ARMS Index closing at 1.58 which is moderately oversold. In reaction to the comments in April, it hit a high of 2.37.

The damage was more severe in the momentum stocks as the Global X Social Media ETF (SOCL) lost 4.16% led by a 7% loss for Twitter, Inc. (TWTR) and a 3.7% drop in Facebook, Inc. (FB).

The Spyder Trust (SPY) and NYSE Composite are now testing their 20-day EMAs which is characteristic of normal market correction. The market is looking to this afternoon’s release of the FOMC for further hints of the Fed’s policy.

Investors and traders are wondering whether this is the start of another punishing decline for the social media stocks that will precede a deeper market correction or is it a bear trap that is setting the stage for further new all time highs. A technical look at some of the key markets will help clarify the current outlook.

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Chart Analysis: The PowerShares QQQ Trust (QQQ) tested the upper boundary of its trading channel (line a) for three days before Tuesday’s drop.

The close Tuesday was well above the lows with further support in the $211-$214 area. which includes the monthly projected pivot support.

The relative performance shows a pattern of higher highs but has now dropped back to its uptrend, line g.

The weekly RS line (not shown) is still holding above its WMA.

The daily OBV has also dropped below its WMA and is now testing its support (line h).

The strength of any rally from current levels will be important as it could generate an AOT buy signal.

The 20-day EMA and the first strong resistance is now at $225.37.

What it Means: In April, I made the case why investors should avoid momentum stocks as the risk control is very difficult. The technical outlook for Global X Social Media Index (SOCL) and Twitter, Inc. (TWTR) indicates they are still vulnerable to a further decline. The outlook for Tesla Motors, Inc. (TSLA) is more positive and I would look for the $211-$214 area to hold.

As for the overall market, there are no convincing signs yet the market has formed or is forming a significant top. Just like a super tanker, it takes time to turn the market’s trend. The strength of next rally will tell more and further new highs cannot be ruled out.

The next couple of weeks will be important as the market has a seasonal tendency for weakness at the end of July (see chart). Stronger warning signs would be generated if the NYSE Advance/DeclineNASDAQ:SO drops below both of the June lows and the OBV starts to develop a new downtrend.

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